As someone who talks to users of manufacturing software on a daily basis, I often hear people complain about paying annual maintenance fees because they feel they are not getting value for the expense. This article discusses this issue.
A key factor in choosing software for your manufacturing operation is looking at the Total Cost of Ownership (TCO). This refers to such areas as ongoing cost for your organization to use and maintain the system after initial training and implementation. After a few years, the TCO can easily exceed the initial cost of the system.
The more powerful and complex the system, the greater the TCO. Needless to say, the annual maintenance fees that the vendors charge for support and “no cost” upgrades are a major component of the ongoing costs. The underlying theory is this underwrites software improvements and the vendor support services.
But what are you really getting for this annual fee which generally is from 18-22% of the software cost? In some cases almost nothing. This is so if the vendor is not investing in improving the product and you really don’t need their support services, or only need them rarely. You wind up getting little if any benefit from from a significant part of the annual cost. There is a further twist to this and that is vendors will usually charge the annual percentage cost based on the current retail cost of the software and not on what you paid for it.
Let’s say you purchased a system which sells for $100K at listed price and were given a 20% discount. (This is actually very common.) At a 20% annual maintenance fee that 80K investment is going to cost you $20k per year in maintenance fees which is 25% of your original cost. That’s quite a hefty chunk and if you see little, if any improvements over the next few years, your return on this cost is pretty close to nothing.
There are some vendors who buy other vendors in their industry primarily for milking the existing customer base for maintenance fees since they have no plans to make any significant improvements to the software. These vendor profiles can be identified by the underlying database. Is it MS SQL or Oracle? If not, it may be an older technology which is likely to be a dead end as far as further development is concerned.
Those vendors are relying on a common aversion to users who don’t want to change their system no matter what since they see the pain of converting to a new solution as even worse than paying maintenance fees. In fact many users will stop renewing their maintenance contract since they don’t see any return for their expense.
What inevitably happens is the software eventually becomes obsolete due to new operating systems and virtually unusable. And if users have any support questions they are on their own. What is the answer to protecting yourself?
Ask the right questions before you sign the contract and ask to see documentation on what improvements have been made to the software over the past few years, and the basis for ongoing maintenance and support fees.
Also ask about the database and the programming language used and what the vendor plans are for updating their technology.
It’s easy to ask the right questions but many buyers overlook these issues and fail to qualify their long term cost of ownership.